Month: February 2016

LFC, Shanghai, and QE or other forms of stimulus.

Hamilton

LFC is the US traded ADR of the China Life Insurance Co. It is not updated to today, but in China this stock is trading at a new low. This is what it looks like, together with the Shanghai index;

lfc feb 29 2016shanghai feb 29 2016

There are previous blogs on the Shanghai. In fact we warned about this index right from the very beginning. The question here, however, is why one of the largest insurance companies is doing so badly. Insurance is a relatively new business in economies like that of China (centrally planned, communist, family centered etc.), which is why so many of our own insurance companies have set their hopes for growth on China. Manulife is a good example. Maybe things got a little too exuberant but the immediate future does not look all too hot.

All we really need is that the PBOC throws in a few 100 billions of Yuan stimulus every now and then and things will just be honky dory. Not according to Bloomberg;

China Real estate v stock

We know that water always  flows to the lowest point, so does money, only central bankers do not know that. In other words you can flood the place but you cannot direct the flow. That lesson is being learned fast in China as is witnessed by the above chart from Bloomberg. The stock market over about the last year, say all of 2015 plus Jan. and Feb. of this year, is down close to 50% (right scale) and home prices are are up 100% (left scale). If you are mathematically challenged, that is the same! Furthermore, to the extent that money can freely flow across borders, this phenomenon is spread around the world (even if it is not immediately recognized by the local powers that be, such as our own Bank of Canada). The effects are also amplified as each central bank is trying to outdo the other. All we are left with, for another 5 years, is Ms. Christine Lagarde, who, by the way, has her own stimulus package , does not pay any income taxes and is the world’s highest paid civil servant, to warn us against “beggar-thy-neighbour” policies.

FSLR, First Solar update

Hamilton

fslr feb 28 2016 bFSLR feb 28 2016 s

First Solar has worked out well, so far at least. Looking at the big picture we had, and still have, much higher levels in mind for this stock. However, we are approaching a minor double top situation and, as we have said ad nauseam in this blog, it is always smart to step aside at these points in time.

The buy recommendation, we were not very alert, was at $49. Here we are a year later at $73. It should perhaps trade a dollar or so higher but we do suggest selling the stock at about that price. That is a gain of $24 on $49 or 49%, more than you get on your GIC.

The solar technology has a very bright future but the influence of China as a producer and the miserable inept interventions by various governments and their regulators,  make for an irregular path up. Playing it safe is the way to go.

See also TAN, where you should also have exited the trade at the double top level. It may be a buy again soon,

RJET, Republican Airways Holdings Inc.

Hamilton

RJET

RJET filed for creditor protection, Chapter 11, yesterday. This begs the question if this could have been foreseen by EW practitioners. The answer, of course, is no, it could not have been foreseen. But you would have known that a basic corrective pattern is an A-B-C down. It can be a flat or a zig-zag. This is not a flat as the stock never climbed back to the $24 level, not even close. It is therefore a zig-zag which has the basic characteristics of a 5-3-5 move. The rule to remember  is that 5-wave sequences never stand alone, there is always either an A-B in front of it or a B-C behind it, that is another 5-wave sequence. You also know that a new low, below the low if the first 5-wave sequence should be anticipated. In this case that is a low below $2.61.

Also often you retrace back to the highest point in the triangle or a Fibo 61.8%. Here we did both.  So there is no excuse if you are still holding this stock.

There are other possible counts for this stock but they all have this same 5-3-5 pattern.

HCG, update

Hamilton

The usual then, less than two weeks ago, and now charts;

hcg feb 14 2016HCG feb 27 2016

The high on this stock was $53.78 and the recent low $22.99, that is a drop of $30.79 which is 57.25% of its value at the peak lost in little more than a year. As we do not know, and cannot find, the starting value of this stock we cannot calculate what percentage this is of the increase in the value but we assume that it would be very close to the Fibo. 61.8%.

If you played this stock you are up about 40/45%. We suggest you take that now or after a dollar or two and step aside. The reason is that we may be further along in the wave count than we originally thought. Closing the gap is less likely but the stock could get to $35 or so but we would not wait for that. Both the RSI and MACD could be ready to rollover.

Long term the target stays the same at around $7 or so. Note that wave 1 is $53.78-$25.46=$28.02. Reverse engineering that, assuming C will be equal to A, you get $7+$28.02=$35.02 for the high of this intermediate correction (an irregular flat).

Keep in mind that the count shown is just the preferred one, there are one or two other possibilities, as almost always.